Risks and rewards of free enterprise

Because we operate in a capitalistic economy—a free-enterprise system—we as engineers and managers can not think of it as a black box. We must understand something about how our economy works, especially in the 21 st Century. Free enterprise is the wave of the future. As such, it will continue to deeply affect our private destinies and those of our children.

One central attribute of capitalism is the market system. It is one in which economic activities are left to men and women freely responding to the opportunities and discouragements of the market place, not to the established routines of tradition or the dictates of someone's command. In a market system, most individuals are free to seek to work where they wish, but they must also shop around for a job.

A market in capital means there is a regular flow of wealth into production—a flow of savings and investment organized through banks and other financial companies, where borrowers pay interest as the reward for having the use of the wealth of the lenders.

The services of labor, land, and capital are hired or fired in a market society. They are called the factors of production. To study economics is to learn how the market combines these essential factors to create products for the marketplace.

However, the economic freedom of capitalism offers both rewards and punishments. On the one hand, the system offers the freedom of choice and the possibility of achieving our dreams. On the other hand, this freedom requires us to stay afloat in rough waters where everyone else is also struggling to survive.

Thus, the market system can cause unrest, insecurity, and individual suffering. However it is also the driving force for progress, opportunity and fulfillment.

In reality, the market system becomes a contest between the costs and the benefits of economic freedom.

From its beginning, capitalism has been characterized by a tension of policies between laissez-faire ("leave it alone," the basic philosophy of Adam Smith) and intervention, which is a "democratic" political orientation that modifies the free market through government spending, laws, taxes or tariffs.

Today, rapid improvements in transportation and communications are basically pushing us closer together, thereby creating world economies, regardless of the actions of individual governments. We are gradually approaching a concept of Space Earth, which would be the ultimate result of globalization.

Ask the
manager

Q: How were capitalistic challenges met in the past?

A: The Industrial Revolution created the need for the first government regulations of basic labor conditions through labor laws, unions, and collective bargaining.

Trustification was the source of the first antitrust laws, such as those brought to bear upon Standard Oil and other trusts like the old AT & T. The reforms of the New Deal, such as the Social Security Administration and banking regulations, helped tame the Great Depression.

The responses to globalization and ecological deterioration will have to develop spontaneously within the dominant socioeconomic framework of the 21st Century.

Free enterprise in a participative government is the only means by which a body of people can provide itself with that which cannot be obtained elsewhere specifically, the factors provided by capitalism are:

Foreign policy and defense

Law and order

The provision of public capital

A counter balance against the unwanted effects that emerge from the private sector.

There are many unsolved problems in capitalism, but a complex society cannot exist without participative government acting as a kind of gyroscope or steering mechanism when the economy needs a balancing counterweight.

Q: How is the European Union trying to meet these market challenges?

A: The EU is one example of a group of countries trying to cope in a capitalistic market system. Its purpose is to commit member nations to the goal of opening their borders to the free movement of labor, capital and goods. After some 50 years, the EU has evolved into an internal European market without boundaries.

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